Visa, Inc. (V) has a business model which should provide dividend growth for years to come. The company is the industry leader and on the cutting edge of electronic retail transactions. The business model is fairly easy to understand. The company has increased its annual dividend from 21 cents in 2008 to 88 cents in 2012. Visa is strategically placed to increase its dividend for the foreseeable future.
Business Model: Visa is the world’s largest retail electronics payments network. The Visa network offers transaction processing services. The business model includes many forms of product platforms. Most people are familiar with the credit card, and debit card prepaid card. The company owns and operates popular payment brands. These brands include Visa, Visa Electron, PLUS and Interlink. Interlink is licensed to clients for their payment program usage.
Visa’s Earnings and Dividend Analysis: Visa earned $4.99 in fiscal year 2011. The stock is currently trading at $95.82. This is a 19.2x price to earnings multiple. Analysts project Visa will earn $5.50 in fiscal year 2012. I believe this is a low estimate based upon the global increase in Visa’s products. The company earned $3.91 per share in fiscal year 2010. Based upon the above numbers, Visa’s 2011 year over year earnings per share grew at a 27.6% rate. Mobile transactions, online transactions, debit card transactions are all increasing around the globe. Per the below chart, investors have witnessed a significant dividend growth rate since Visa’s initial public offering in 2008. The 2012 dividend was recently raised by 47% to 22 cents per share. This equates to an annual 88 cents dividend per share. This amounts to a .91% annual dividend yield. Clearly this is not a dividend stock for high income seekers. This equity is for individuals who are seeking a blue chip global franchise with tremendous growth opportunities. The stock should continue to increase its dividend, as its growth expands into new markets and new offerings. The company has zero debt on its balance sheet. This will allow for the company to consider acquisitions or focus upon research and development of mobile product offerings.
Growth Opportunities: Visa is aggressively growing around the globe. Visa’s international business is rapidly expanding in all regions. Latin America payments increased by 19%. The aggregate Central Europe, Middle East and Africa increased by an eye opening 35%. Debit transactions represented 23% of Visa's foreign operations. The company's U.S. payments increased by 11% in 2011. The debit card market represented 58% of domestic transactions. On May 11th, Visa announced a “next generation” agreement with major financial institutions. This will facilitate the customers’ ability to process mobile transactions. On June 9th, Visa announced the purchase of 2 key companies in their acceleration into mobile transactions. Visa purchased Fundamo, which allows developing nation residents to process mobile transactions. Many of these customers do not have an established banking account. Visa announced a new agreement with Monitise. Monitise integrates the use of Visa transactions with customers who possess a Visa debit or credit card.
Direction Competition: Visa is the industry’s payment volume leader. Visa’s fiscal year ends September 30th, 2011. In this SEC 10-K table, investors can note Visa’s leading market share:
Mastercard Incorporated (MA): MasterCard is the 2nd leading global leader in electronic payments. The company provides payments services including processing, franchising agreements, and holds an advisor relationship to about 25,000 financial institutions. MasterCard has aggressively offered mobile transactions to customers. The company’s PayPass allows customers the ability to securely perform mobile transactions. PayPass must be linked to a MasterCard debit, credit, or prepaid card. The customer simply waves the PayPass card near the transaction and the transaction is complete.
American Express Company (AXP): American Express is a leading global payments, network and travel firm. The company was established in 1850. American Express processes millions of transactions per daily as a card known for high spending cardholders. They are the 3rd leading credit card issuer per the above table. American Express Mobile offers customers the ability to manage their American Express card on the go. This is done by allowing critical account information and Pay Bill capability accessible from the users' smart phone.
Disruptive Technologies: Technology has introduced new platforms for customer transactions. These technologies provide new venues for payment of goods and services.
Google Inc. (GOOG): Google is clearly focusing upon the online and mobile markets. Google owns “Google Wallet”. The Google Wallet aggregates a customer’s credit cards and payments options. The customer can then use the Google Wallet to purchase, via pressing her mobile phone Wallet application, at brick and mortar locations. The Google Wallet is available on many online stores for purchasing products and services. Google’s Droid mobile operating system is rapidly growing and taking on Apple’s (AAPL) iPhone for smart phone leadership.
Apple: Apple announced last month a mobile system, EasyPay, for the retail customer. EasyPay is Apple's retail payment option to shop and pay for product offerings. The user scans a product, reviews the prices and product, and then can purchase via her mobile iPhone. EasyPay does require the retail customer to have an Apple iOS device to make the purchase. The potential exists to link all aspects of the transaction thru the customer's iTunes account.
eBay Inc. (EBAY): The online retailer ebay is well-known for its ownership of online payment processor paypal. Paypal processes eBay’s online transactions. In addition, Paypal has numerous payment processing solutions for individuals, online stores and customers and corporations. Paypal may make an attractive acquisition for an online and mobile payment processor. Currently, paypal is considered a vital unit of eBay, and competitors may want to avoid using paypal. Presently, both eBay mobile and paypal mobile are frequently used applications to facilitate mobile transactions.
Action Visa is an industry leader in a growing sector. Consumers are increasingly paying for transactions via electronic means. Visa is the leader in providing electronic payment solutions.
I have owned Visa since the initial public offering. I believe investors should establish an entry price based upon their due diligence. Assuming the company earns $5.50 in fiscal year 2012, I believe an 18x price to earnings (P/E) multiple is acceptable. An 18x multiple would equate to a $99 price per share. This would make the stock a buy today at its closing price of $95.82.